Last Week on Wall Street

Last Week on Wall Street - March 9th, 2024

S&P 500: -0.13% DOW: -0.02% NASDAQ: -0.70% 10-YR Yield: 4.30%

What Happened?

Economic data releases led the major indexes to finish lower for a second straight week as investors adjust their expectations for the Federal Reserve's path for interest rates. Both the Consumer Price Index (CPI) and Producer Price Index (PPI) showed higher-than-expected inflation for February, suggesting that price increases may prove more stubborn at these levels. Additionally, while the retail sales report showed improvement compared to previous months, it fell slightly short of expectations. These developments have led to revised expectations for the Federal Reserve's rate cuts, with projections now indicating fewer cuts throughout the year. Overall, this anticipation of higher market interest rates going forward weighed on both equities and fixed income investments.

Beneath the surface, a rebound in oil prices drove Energy (+3.8%) higher after lagging behind the the index over the last year. Real Estate (-2.8%) was the largest laggard based on fears of higher interest rates with Discretionary (-1.2%) following behind.


Consumer Prices Rose 0.4% in February and 3.2% From a Year Ago

  • The consumer price index (CPI) increased 0.4% for the month and 3.2% from a year ago
  • The core CPI rose 0.4% on the month and was up 3.8% on the year
    • Both slightly above expectations
  • A 2.3% increase in energy costs helped boost the headline inflation number
  • Food costs were flat on the month, while shelter climbed another 0.4%

The key takeaway - The CPI report, despite a few figures being slightly higher than expected, essentially maintains the recent trend of stubborn inflation observed over the past couple of months. Notably, the substantial declines seen last year have stalled, particularly due to services and shelter costs. This data contrasts with the optimism entering 2024, where there was hope that inflation would ease meaningfully, allowing the Federal Reserve to implement aggressive rate cuts throughout the year. However, recent economic reports suggest that the Fed has more reason to maintain its current restrictive stance. With inflation persistently above their long-term target, the Fed will require additional evidence of either a significant decline in inflation or a deterioration in economic health before considering a more dovish policy stance.


Wholesale Price Increases Add to Picture of Persistent Inflation

  • The producer-price index jumped 0.6% in February, matching the largest gain since last August
    • The figure doubled economist forecasts
  • Core PPI rose at a still-sharp rate of 0.4% for February and 3.8% for the last 12-months
  • Services costs rose 0.3% while energy prices increases a substantial 4.4%

The key takeaway - While the PPI report may not garner as much attention as its consumer-focused counterpart, it offers valuable insight into future price trends as wholesale costs ultimately influence consumer prices. February's findings indicate mounting inflationary pressures as producers contend with elevated input prices. This data, coupled with other economic indicators, suggests that the struggle against inflation, previously believed to have been largely resolved by the Federal Reserve, may be pushed into extra innings. It appears Jerome Powell and his colleagues have further ground to cover before declaring victory, implying a higher-for-longer policy stance by the central bank for the time being.


Jeffry Bartash - MarketWatch

US Retail Sales Rose 0.6% in February

  • U.S. retail sales rose a seasonally adjusted 0.6% in February compared with a month earlier
    • Economists had expected a 0.8% increase
  • Core retail sales, excluding autos, gasoline, and food, was flat for the month
  • January's decline in sales were revised further down from 0.8% to 1.1%

The key takeaway - The resilience of the American consumer has been a cornerstone of the unexpectedly robust economic activity witnessed over the past year. However, recent retail sales figures suggest a softening in this area. While February's data showed a rebound, it fell short of the recovery many had anticipated following January's contraction. Furthermore, the Commerce Department's downward revisions to January and December's readings amplify the recent softness, painting a bleaker picture than initially thought. While it's premature to sound any alarm bells, these developments hint at potential challenges ahead for consumer spending. More data is necessary to confirm any significant weakening, but there are potential warning signs that consumer expenditure may face greater obstacles in the months ahead.


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